Innovative Wage Settlements

Sharing of experiences

T Sudhakar Rao, ED (HR)

The Company
A diversified Navratna CPSE under the Min. of Defence, Dept. of Defence Production; Ranked 34th among Global Defence Companies Products: Aircraft, Helicopters, Upgrades, Engines, Accessories and Avionics Activities: Design; Manufacture; Maintenance, Repair & Overhaul Services; Upgrades & Modifications; Aerospace Structures Pan India presence with 19 Production Divisions & 10 Design Centres Over 950 types of Accessories and Avionics Equipment. 9882 Executives and 24439 Technicians & Support Staff (31.12.09) High Order Book Sales: Rs. 10373.38 Crs.; PBT: Rs. 2334.86 Crs.(2008-09)

Major Customers
Indian Defence Services Civil : Indian Air Force, Indian Army, Indian Navy, Coast Guard : Department of Space, BSF ONGC, State Governments Exports : : Boeing; Bell Helicopter; Airbus; Eurocopter Israeli Defence Companies; Rolls Royce etc. Helicopters to Ecuador, Nepal

Joint Ventures with:

BAeS Ltd., UK Russian Partners Snecma Ltd., France Elbit Systems Ltd., Israel SAMTEL Group, India Edgewood Venture, USA Infotech, India Tata Timkin

Wage Settlements of Workmen in HAL

Being a PSU, need to adhere to Govt. Guidelines 6 Wage Settlements from 1.1.69 to 31.12.07 Settlement period ranged from 4 to 10 years. Last settlement was for 10 years from 1.1.97 Negotiations with Unions Bipartite MoU; followed by tripartite Settlement Wage Revision due w.e.f. 1.1.07

Wage Revision of Workmen w.e.f 1.1.07

Dept. of Public Enterprises has issued Guidelines for Wage Negotiations with Unions Managements of CPSEs are free to negotiate the Wage Structure, keeping in view the Resources/ Profits No Budgetary support; Resources to be generated internally There shall be no increase in labour cost per Physical Unit of Output Periodicity of not less than 5 years Recognised Unions have submitted Charter of Demands Serious negotiations have commenced only recently as Unions wanted to see the developments in other PSUs

Compensation Strategies for the Current Revision

Shift towards Performance based Compensation

Wage differentials based on Performance Differentials

Performance based Culture; deal with poor performers appropriately

Major issues to be addressed

Paying Capacity of the Company Expectations of Workmen (Charter of Demands) Periodicity of Settlement (Not defined for Officers) Impact on Profitability Productivity improvements to absorb increased cost due to Wage Revision

Major Components of the Wage Structure

Pay Scales; Basic Pay & Annual Increments Service Weightage Pay Quarterly revision of DA, linked to AICPI HRA linked to classification of cities Performance Related Incentives Allowances & Fringe Benefits Service related aspects (promotions etc.) Welfare related aspects Superannuation Benefits (PF, Gratuity, Pension, Post Retirement medical facilities etc.) Average CTC of Semi Skilled & above category of Workmen ranges from Rs. 3.32 Lakhs to Rs. 7.02 Lakhs p.a.

Wage Settlement: Current Trends

Compensation based on the Capacity to Pay Linkage to Quality, Cost & Delivery of Products Negotiations based on facts & realistic expectations More thrust on Performance Related Pay; Incentive Scheme recently reviewed Measures to absorb the implication of revision from internal resources

Creation of Background for better negotiations

Recognition of Workmen Unions as Business Partners instead of bargaining agents

Proactive measures for settlement of issues & real time information sharing through Quarterly meetings at Corporate level

Workers Participation in Management through various Committees Sustenance of mutual Trust

Measures to absorb cost of wage revision

Rationalisation of SMH content of Products by 20% Reduction in actual hours for manufacture consequent to SMH rationalisation Reduction in Cycle Time Ensuring Uniform Production Timely delivery to avoid LD Reduction in Material Consumption & Cost Reduction in overhead expenses Control on induction of manpower Reduction in Idle Time Cost reduction targets fixed Division wise Periodical Review More Manpower (volume) vs. Quality Manpower (Quality - cost)

Performance Related Incentives

Monthly, Quarterly & Annual Components The Scheme aims at achieving : Enhanced Divisional Performance - Physical & Financial Uniform production Timely deliveries Meeting monthly, quarterly & yearly targets Enhanced Individual Performance

Suggestions for Revision (contd)

Composition of the Compensation Package could be

Basic Salary (Basic Pay +DA+HRA) Perks & Allowances Performance Incentives ( Variable Pay)

: 40% : 20% : 40%

Criteria for Performance Incentives (Variable Pay) could be: Profit generated by the Company; Capacity to Pay Business Environment Meeting Physical & Financial Targets; Individual Performance Group/Team/Dept. /Divisional Performance

Suggestions for Revision (contd)

Terminal Benefits:
Additional Retirement Benefit (Superannuation/ Pension Scheme) Defined Contribution Remove Gratuity Ceiling Revise the traditionally extended benefits like Housing, Medical & Educational facilities Post retirement Medical Benefits